Is Refinancing Worth the Cost?

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Ever hear the old rule of thumb that states you should only consider refinancing if your new interest rate is at least two points under your existing rate? That might have been true a while back, but with refinancing dropping in cost over the last few years, it is a good time to explore the options of a new mortgage loan! A refinanced mortgage loan is often worth its cost several times over, factoring in the advantages that come, as well as a reduced interest rate.

Benefits

You could be able to bring down your interest rate (sometimes significantly) and reduce your monthly payment amount with a refinanced mortgage. You may also have the option to "cash out" a portion of the built-up equity in your residence, that you will be able use to take care of higher interest debts, make home improvements, or take a vacation. With lower rates, you might also be able to build up home equity more quickly by changing to a shorter term mortgage.

The Cost

Of course, you will have some fees and expenses during your process of refinancing. With your refinance, you're paying for basically the same things you paid for at the time you obtained your original mortgage loan. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Doing the Math

Paying points can get you a better interest rate. When you pay (on average) three percent of the loan amount initially, your savings for the term of the new mortgage can be great. We recommend that you consult a tax professional before acting on advice that any points paid may be deducted on your federal income taxes.

Another thing about taxes is that when your interest rate is reduced, of course you will also be reducing the paid interest amount that you'll be able to deduct on your federal income taxes. This is another expense that borrowers take into consideration. We can help you do the math! Call us at (610)647-5454.

Ultimately, for most people the total of up-front costs to refinance will be made up very quickly in monthly savings. We will help you determine which program is perfect for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and what effect refinancing will have on your taxes. Call us at (610) 647-5454 to get you started.